Kraken's Bid to Dismiss SEC Lawsuit Denied by Federal Court

According to Cointelegraph: A U.S. federal court has denied Kraken’s motion to dismiss a lawsuit filed by the Securities and Exchange Commission (SEC), which accuses the crypto exchange of operating as an unregistered securities exchange. The decision, issued on Aug. 23 by the U.S. District Court in Northern California, marks a significant development in the ongoing legal battle over the classification of cryptocurrencies as securities.The SEC’s lawsuit, originally filed in November, alleges that Kraken has been facilitating cryptocurrency transactions that qualify as investment contracts, and therefore should be subject to securities laws. The court agreed with the SEC’s position, stating that the agency had “plausibly alleged” that some of the transactions facilitated by Kraken involve securities.The ruling highlights the broader struggle within the crypto industry to define which digital assets fall under the SEC’s jurisdiction. The court emphasized that the determination of a security does not solely depend on formal investment contracts but also on the overall circumstances surrounding the sale and the expectations of the investors involved.An SEC spokesperson reiterated the importance of crypto trading platforms registering with the agency to ensure investor protection. The spokesperson noted, “Investors in crypto assets offered or sold as securities should get the same protections as investors in other securities, even when they are traded using intermediaries.”Despite the ruling, Kraken’s chief legal officer, Marco Santori, suggested on social media that the court recognized the distinction between a token and the agreements surrounding it. Santori argued that the court’s decision does not mean the tokens themselves are securities, but rather that the SEC must prove that the conditions of each transaction meet the criteria of the Howey Test, which defines what constitutes a security.This case mirrors a similar dispute involving Coinbase, which is also challenging the SEC’s classification of its virtual asset-staking products as securities. Additionally, the SEC recently rejected an application from Cboe Global Markets to list Solana exchange-traded funds (ETFs), citing the classification of SOL as a security.The court’s denial of Kraken’s motion to dismiss does not constitute a final ruling but indicates that the SEC’s claims are deemed plausible enough to proceed to further legal examination.